Most people who buy a franchise have never before owned a business. Part of the romance of franchising for these people is that it's new and untried. If you've never owned a franchised business, trying to imagine the experience using information from friends and family leaves you vulnerable to myths. To protect yourself, learn to identify the common myths and set yourself straight as you consider buying a franchise.

Andrew A. Caffey is a practicing franchise attorney in the Washington, DC, area; a former general counsel of the International Franchise Association; and an internationally recognized specialist in franchise and business opportunity law. E-mail him at ACaffey@compuserve.com

Myth #1:

You roll the dice when you buy a franchise.
Alternative myth: You can't miss being successful with the
right franchise.

The reason most myths become widely accepted in the first place
is that there's a kernel of truth in them. Franchising has a
reputation that's part shimmering small-business success and
part fast-talking huckster. It's earned that dual reputation
through 30 years of minting gold-plated McDonald's millionaires
and 30 years of franchise failures (accented by the occasional
all-American fraud).

The reality lies somewhere in the middle, of course. Any time an
investor decides to put money into a new business, there is
extraordinary risk. It matters little, despite claims to the
contrary by those hyping the growth of the franchising industry,
whether the new business is franchised or independent. It's a
fact of life that all business endeavors involve risk.

Behind every successful franchise chain is a group of owners
working harder than they ever thought they would. Many of them are
loving it--and no doubt, some of them are miserable.

Don't buy a franchise expecting your path to be paved with
gold. At the same time, don't let a cynical eye steer you away
from a terrific investment and development opportunity. The
objective is to find a solid franchise program that works well for
you, and then use it to build your own success story.

Myth #2:

You have to flip a lot of burgers to make it in
franchising.

Becoming a franchisee no longer means you have to ask "Do
you want fries with that?" The real growth in franchising in
the 1990s has been in specialized service providers--especially
business-to-business and homebased--and not in fast-food
restaurants. Franchising has spread into other industries and
professions. With pet-sitting services, real estate brokerages and
funeral homes now being franchised, the burger image is fading
fast.

Myth #3:

The UFOC is a government-mandated, worthless
boilerplate.

The UFOC, or Uniform Franchise Offering Circular, is a document
franchisors are required to deliver to all prospective franchisees
at their first serious in-person meeting or at least 10 business
days before the deal is sealed. The UFOC's guidelines, which
must be followed by franchisors, are government-mandated, listing
in detail the questions to be answered and the information and
contract forms to be included.

But the UFOC is an essential lifeline for investors. In recent
years, the document's format has been changed so that it's
now written in plain English. It's shorter than it used to be
and provides a lot of key information in chart form. It contains a
sample of each contract you'll be asked to sign and up to three
years of audited financial statements for the franchisor. It's
a treasure trove of investor information.

Failing to review the UFOC carefully is a big mistake. You need
to know the franchisor's background, its bankruptcy and
litigation history, and the experience of its executives. You need
a summary of the fees you'll pay for the right to participate
in the program, and you need to know the average total investment
required. You need to know what restrictions are placed on your
purchase of product supplies and your obligations under the
franchise agreement. Is financing provided? On what terms? You need
to know the legal status of the company's principal trademark
and whether it's registered with the U.S. Patent and Trademark
Office. The UFOC will also tell you if the franchisor chooses to
deliver earnings or performance information about its system, and
it gives a complete list of franchise owners in your area.

In a sense, the government has done some of the thinking for you
by providing answers to the basic questions that all investors
should ask (but may not think of) in the UFOC. The theory is that
by having access to a UFOC, investors will be well-informed and
make better investment decisions, and the marketplace will operate
more smoothly. If there are risks lurking in a franchise program
such as an unregistered trademark, a long bankruptcy history, a
thinly capitalized franchisor, a propensity to litigate or a
two-year trend of system shrinkage, then investors will be in a
position to weigh those risks and act accordingly.

Myth #4:

The UFOC tells you all you need to know about the
franchise.

Not so. As useful as the UFOC is, it's only a small portion
of the information you need to evaluate before you decide to
purchase a particular franchise. You also need practical and
professional input.

Call several of the franchise owners listed in Item 20 of the
UFOC, and ask them about their experience as franchise owners in
the system. What have their greatest challenges and disappointments
been? Did they make the amount of money they expected? If they had
the investment decision to make again, would they still buy this
franchise?

There is no experience as instructive as meeting and observing
current franchise owners. Visit the business, and find out if you
can follow the owners around for half a day. Ask them questions
about what they do and why they like it. You'll get the real
story here, not the varnished presentation of a sales
representative who earns a commission when you sign on the dotted
line.

You should also plan to take your UFOC to both an accountant and
an attorney. You'll need a competent accountant to prepare a
solid cash-flow analysis of the business. Your accountant can
estimate when you'll break even and tell you whether you can
afford to invest in the business. Involving an accountant early can
help you avoid costly surprises later.

A good business lawyer can explain the legal relationship the
proposed franchise agreement will create. Franchise agreements are
unusual legal contracts. They can span a generation of time; grant
a list of intangible rights, from trademark use to exclusive
territory rights; severely limit the decision-making power you
would otherwise have as an independent business owner; and have
frightening termination language that puts you and your life
savings on a trap door with a hair trigger. Talk through the
implications of the contract with your attorney. There may well be
provisions that you'll be advised not to sign. If so, can you
negotiate the terms of the franchise agreement?

Myth #5:

Franchise agreements are offered on a take-it-or-leave-it
basis.

In fact, you can and should negotiate the terms of your
franchise agreement. Franchise laws in some states, such as
California, make it difficult for a franchisor to negotiate any
changes in its franchise offering. In that state, a negotiated
change must be filed with state officials and displayed in all
subsequent UFOCs. In most states, however, changing a franchise
agreement is more straightforward. In fact, Virginia
requires that the terms of a franchise agreement be
negotiable, or the contract may be voided by the franchisee within
a certain period of time.

If your attorney advises you that a provision should be changed
to protect your interests and the franchisor refuses to consider
the change, think hard before going ahead with the deal.

Clearing away the myths allows you to make a realistic
evaluation of the investment and is an important first step on the
road to franchising success.